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By: G R Gopinath

It is time the government bites the bullet and faces the crisis squarely. By effecting cosmetic changes, the cancer cannot be wished away. The Air India pilots have once again played a cruel joke on passengers and the bankrupt airline, and held a hapless government to ransom. What are the facts and realities?

Liabilities

Unsustainable debt: A whopping 40,000 crore. One can start 80 airlines easily with that money.

Overstaffed: Highest number of employees, 475 per aircraft against 70 in IndiGo.

Demoralised employees: Underpaid and underutilised staff.

Air India's cost per available seat km (CASK), which is the industry benchmark globally for measuring airline efficiency, is probably the highest in the world. It is four times IndiGo's and five times AirAsia's. Aircraft are not sweated fully with colossal collateral damage.

Inexperienced bureaucrats, usually political appointees, running the airline. No autonomy, nor accountability to deliver. Non-performance is rewarded with transfer back to another department or plum postings.

Political interference, irrespective of party in power - and this will not change. It is a reality we must face and accept. Expecting otherwise is wishful thinking.

Being a government-owned organisation, it is heavily unionised, and pilots, ironically, the highest paid, are the most demanding, crippling the airline.

Like all government-run companies, it is a 'cost-plus' culture. No accountability or fear of bankruptcy at any level. Employees are confident, in the end, the government will buckle and bail them out.

Assets

Air India has huge assets in land, building, engineering, bilateral grandfather rights, slots, extensive network and a powerful brand with fond nostalgia. It is in no different shape than what British Airways or Lufthansa were when they were on the verge of bankruptcy and were privatised two decades ago.

What can be done

Hive off the company into three separate units: (a) all of Air India's land, buildings and assets across the country into a separate entity, and from its sale, compensate all surplus employees who have to be laid off with a golden handshake. The money that the government will realise from that sale will probably leave some extra cash in the kitty as Air India holds prime family silver. Or, if there's a shortfall, the government can pitch in. It is better than pumping 30,000 crore into a black hole and a few thousand crore every year ad infinitum as Air India will continue to lose money pitched against private airlines.

(b) Create a lean airline that can be sold off for a premium, with sustainable debt and only operational assets necessary to run the airline, which will then be an attractive proposition to any investor. (c) While Air India may be overstaffed and filled with deadwood, it also has excellent, qualified people in engineering who can be cherry-picked. The company has massive investments in maintenance, repair and overhaul (MRO) and engine shop. Air India MRO can be hived off into a separate company and privatised, as was done with Lufthansa Technic.

And this will not only stem continued bleeding but, on the contrary, government will benefit from annual revenue against loss, as in the case of Maruti Suzuki, when it was sold to Suzuki in stages. I am saying bleeding will continue because nothing has changed structurally and Air India, the way it is managed, is inherently flawed and will never be able to face fierce competition and make money.

But the government has work to do in creating a vibrant aviation sector and enacting a long-term strategic vision for aviation for all stakeholders including air cargo, MRO, manufacturing of components for aircraft, a multi-billion-dollar industry, airports - which have become monopolies and are the biggest impediment to expanding the consumer base and are unwittingly killing the golden goose.

The booming economy will collapse if aviation, which is integral to economic growth, collapses. The government must build an ecosystem for a sustainable and robust aviation sector rather than make individual policies to suit Air India or Jet Airways or Kingfisher Airlines. This has been the case with successive governments. Less than 3% of Indians can afford air travel. Last year, only 50 million domestic passengers flew.

If the government, for example, asks what policy framework and incentives we need to take it to 20% in the next five years, how do we make India an international aviation hub for passengers, design, manufacturing, MRO and cargo on the lines of Singapore, by taking advantage of our technical manpower, natural resources and exploding economy, and should aviation be treated as a core infrastructure, we will get the right answers.

Time is running out and the Prime Minister, in consultation with the aviation minister and other ministries, must act with speed and firm resolve.

But first, the realisation must dawn on the government that Air India is not India and that the larger interest of the country is more important than the interest of Air India, which is just another company, and is not mortgaged to mollycoddled unions and a few belligerent employees. Taxpayers' money can be better deployed for alleviation of poverty. The government has enough on its plate and must exit the airline business immediately.